Dogfight On Madison Avenue.

Advertising firms zero in on new niches while they battle firms for accounts

FORGET THE DAYS OF YORE WHEN BLACK-owned advertising agencies just targeted the African American audience and the general market Goliaths took care of the rest. The line in the sand has disappeared, as last year marked a volatile time in the advertising industry for black-owned agencies that fought gallantly to hold their ground.

Since we reinstated our annual BLACK ENTERPRISE ranking of black ad agencies last year, much has happened. As African American-owned agencies continued to face steep competition from mainstream conglomerates for black advertising dollars, a few emerged battle scarred, while others remained on an even keel and still others had their best year ever. Those at the top entertained lucrative buyout offers or opportunities to form strategic alliances with their general market brethren. Perhaps the most monumental event is the federal government's eagle-eyed FOCUS on the pittance of advertising dollars that, for years, has trickled down to the black media and the agencies that serve them. Should the White House intervene, it could mean an infusion of well-deserved capital for black agencies that were long cheated, and new rules to ensure that they continue to get their fair share. Nonetheless, the cadre, 20 strong, must continue to change with the times and diversify their services to survive.

"The future of African American advertising agencies is as clear as a blank piece of paper," states Ken Smikle, president of Target Market News, a Chicago-based marketing research firm that tracks black consumers. "In the past, creating advertising targeted to the black consumer was always a predictable business. However, as companies continue to see the value of this market, the entire industry is being turned on its head. Possible buyouts, untested joint ventures and the ever-changing media landscape have made the future anything but predictable."

According to the American Association of Advertising Agencies (AAAA), a robust economy, Internet advertising and increased ad spending by telecommunications and computer companies prompted a 7% increase in overall U.S. advertising spending for 1998. Of the $160 billion spent marketing to consumers, only $1.1 billion was targeted to the black market, with less than 30% of that going to African American agencies, according to Target Market News.

Overall, 1998 billings for agencies on the BE ADVERTISING AGENCIES list rose by 11.5%, from $795.2 million in 1997 to $886.5 million. While there was a loss of media-buying capability due to a reduction in black-oriented television programming, that loss was offset by an 8%-15% increase in overall ad revenues, which may have helped to boost black agency revenue bottom lines. New to the agencies list is Crawley Haskins & Rogers Public Relations and Advertising of Philadelphia (No. 18 on the BE ADVERTISING AGENCIES list, with $5.4 million in billings). Absent from this year's list is Visions USA Inc., an Atlanta-based firm with $3.8 million in billings.

POPLE ARE TALKING

"In chaos, there's opportunity," says Smikle. "The question is for whom." For years, general market agencies have looked for ways to seize more of the African American or "urban" market. They try to bid for it head on, but often don't have the talent or research to do it right. Other options include buying one of the major black agencies, forming a joint venture with the medium or smaller black agencies and starting an in-house division.

Last year, more than ever before, the top black advertising agencies cocked their ears to talks of mergers or strategic alliances. Burrell Communications Group of Chicago (No. 1 on the BE ADVERTISING AGENCIES list, with $173.9 million in billings) went to the table with Lighthouse Holdings, a tech-based venture capital firm. When an agreement couldn't be reached, Burrell hired the services of Salomon Brothers to field subsequent offers. UniWorld Group in New York, no foreigner to such talks in the past, was courted by Young and Rubicam, and Southfield, Michigan-based Don Coleman Advertising--the 1998 BE Advertising Agency of the Year--is currently in talks with an unnamed suitor. What's in it for them? Exposure to deep-pocketed resources and clients that can help their businesses grow without them having to sell.

"We're just talking. We have not sought a strategic alliance with anyone," says Byron Lewis, founder, chairman and CEO of UniWorld (No. 2 on the BE ADVERTISING AGENCIES list, with $160.4 million in billings). In October, UniWorld named Gregory Walker its new president. Formerly with Benton & Bowles, a general market advertising agency, Walker was most recently director of advertising at Kodak. UniWorld, which was a runner-up last year for the AAAA's O'Toole Award for multicultural advertising, also added Moneygram, Glaxo-Wellcome and Pepsi to its client roster, which already includes AT&T, Ford Motor Co. and Burger King.

"These talks are not a bad thing. General market agencies offer a global reach and are woefully behind any other industry as far as having African Americans and Hispanics making the decisions about this market," says Don Coleman, president and CEO of Don Coleman Advertising (DCA) (No. 3 on the BE ADVERTISING AGENCIES list). "Advertisers depend on agencies to know and have influence. That is why such talks are so important to them." DCA saw its billings jump from $111 million in 1997 to $137 million last year thanks to new accounts such as Miller Brewing Co., Shell Oil and Procter & Gamble. Thomas Burrell, president of Burrell Communications, who won top honors from AAAA for multicultural advertising with television work for McDonald's, Mobil, Sears and Bell Atlantic, could not be reached for comment.

"One of the little-known realities about these buyouts or alliances is that with them, the general market agency inherits access to clients they never had access to before," notes Smikle. For example, if Young & Rubicam joins forces with UniWorld, they get to sit in on the meetings with Ford and learn about its general market account, which is held by J. Walter Thompson. As a result, they have the African American business UniWorld manages, and enough information about the general market account to now compete with J. Walter Thompson for the account. This makes buying or aligning with black agencies even more attractive.

Nonetheless, the Big Three black agencies (Burrell, UniWorld and DCA) seem to be waiting to see who will make the first move. There's no fire sale on black agencies, says Heide Gardner, vice president of diversity and strategic programs at the American Advertising Federation (AAF), a national trade organization based in Washington, D.C. "Most of the Hispanic agencies are either owned by or are in some strategic alliance with major agencies. Black agencies have been the last holdouts." She adds that black agency owners are "classic entrepreneurs with dreams and visions. It's important that their companies still retain the vision and they still have some control. If they were in it for the money, they would have sold a long time ago."

THE YOUNG TURKS

Whether you call the audience "urban," "ethnic" or "multicultural," general market agencies want the attention of the purported 40 million people lured into the hip-hop culture, lifestyle, music and fashion, and they're creating boutique agencies to capture them.

Industry watchdogs and some of the black agencies' old guard pooh-poohed the creation of boutique agencies such as Leo Burnett's Vigilante, DDB Needham's Spike DDB and True North's Stedman Graham & Partners. "They're farces and the principals don't have the talent," says Coleman. "What can these entities bring to a client?

Black agencies have years of expertise and research in the market, and are not just some creative boutique that a general market agency can trot out at a meeting."

Whether on the wings of their benefactors or not, these boutiques, which shun the inference that "urban" is a euphemism for "black," are beginning to come into their own. With less than two years under its belt, Spike DDB's (No. 11 on the BE ADVERTISING AGENCIES list) 1998 billings rose to $18 million. And Stedman Graham ex: Partners is rumored to have had about $15 million in billings last year. "Our naysayers see our commitment to the business and the fact that we are getting the clients," say Marc Stephenson Starchan, co-principal of New York's Vigilante, a year-old urban boutique. Starchan and co-principal Danny Robinson refused to reveal the agency's billings, revenues or percentage of black ownership, but say that business has been good since their launch and count Major League Baseball, Johnnie Walker Black Label, Nintendo, Coca-Cola and Sprint as clients.

"We have tremendous respect for those pioneers that helped make the road easier for specialty and multicultural shops," states Starchan, who describes Vigilante as an "integrated urban culture market communications company" and doesn't view black ad agencies as their competitor. "We're not coming in with the same thing to sell. We're selling a positioning that has a more international scope and we compete with all types of agencies."

Nonetheless, their decision to distance themselves from their predecessors leaves a bad taste in some mouths. "If they were more active in the coalitions, supported targeted advertising and were more sensitive to the issues facing us all in this tough business, there would be greater acceptance," says Jeff Cullers, president of Vince Cullers Advertising (No. 13 on the BE ADVERTISING AGENCIES list). The Chicago-based agency had 1998 billings of $16 million and, this year, teamed up with black-owned P.R. Networks in Detroit to form Vince Cullers Detroit. Their clients include Pizza Hut, Amoco, the U.S. Treasury, the Chicago White Sox and Ameritech New Media.

NO URBAN DICTATE

What began as an internal memo at Katz Radio Corp. in New York has become a hot topic in Washington. The Clinton administration is pressing Madison Avenue to voluntarily adopt a code of conduct to insure that ethnic media outlets and agencies get fair consideration when advertising dollars are spent--or run the risk of federal scrutiny.

The administration's efforts were prompted after the Federal Communications Commission released a study in January that found revenues of radio stations with majority black and Hispanic listeners lagged significantly behind those of mainstream stations. This study came on the heels of last summer's public release of the infamous "no urban dictate" memo, circulated by a Katz employee, warning advertisers not to use radio stations with majority black and Hispanic listeners. Katz, a New York-based subsidiary of Chancellor Radio Corp. of Dallas, secured advertising for radio stations. The document instructed sales representatives to steer companies away from purchasing advertising on ethnic-oriented stations, noting that "advertisers should want prospects, not suspects."

The event also turned the head of the Rev. Al Sharpton, who mobilized a Madison Avenue initiative and in January held a CEO roundtable in New York to address the issues. The AAF also took a leading role in educating government about the issues. AAF agreed to form a business practices and review committee to examine issues of fairness and the feasibility of an industry code of conduct. That committee will report through AAF's standing board task force on multicultural advertising co-chaired by Thomas Burrell and Edward Erhardt, vice president and publisher of Advertising Age, to work with the government. "This attention will dramatically change the business climate for black advertising agencies. But it will take the support from CEOs [of the client] to make a difference," says Byron Lewis of UniWorld.

Some take a more cautious viewpoint. "There is a lot of noise. While this heightens attention, a proposed code is not going to fly," says O. Burtch Drake, president and CEO of the AAAA in New York. "It will be neither feasible nor helpful, because private advertisers don't like being dictated to about what and where they should buy." Even without wholehearted cooperation from the private sector, the effect on black-owned media outlets and advertising agencies can be profound with government regulation, since the federal government--which includes agencies such as the U.S. Postal Service and the Department of Housing and Urban Development--is one of the top 20 advertisers in the country.

"Black advertisers now have a voice they've never had before," notes AAF's Gardner, who is the coordinator of the association's task force. "I don't think anyone is looking for a mandate. Instead, it's a way to educate CEOs and decision-makers about the problems, and make them look at the data and make a consistent effort to consider all consumers."

WHAT NEXT?

At the AAF's CEO roundtable, which took place in February, a recurring issue was the Internet and its great marketing potential, which has yet to be quantified or significantly tapped by African Americans. "Anything with technology is a watchword. Advertising on the Internet was a $2 billion industry last year and is growing dramatically," says Drake. "Any agency that isn't placing advertising on the Internet now, better get on it soon." It's an arena where returns are still difficult to quantify, but it's showing increased use by African American consumers as e-commerce continues to make headway.

Diversifying services is also another way black agencies are looking to thrive. New York-based Chisholm-Mingo Group (No. 4 on the BE ADVERTISING AGENCIES list, with $78 million in billings), which shares Texaco's African American targeted business with UniWorld, is repositioning itself and taking on more "crisis management" advertising, as evidenced by its success with the Denny's account. It also formed a separate public relations and marketing communications division, and has become a leader in minority corporate advertising.

"This is beyond affirmative action or EEOC, as marketers see that they can't just throw an image here or there," says Sam Chisholm, chairman and CEO. "They want a fresh, new look and we are changing the playing field." With new clients such as Metropolitan Life, Time Warner and Year 2000 Census, Chisholm says that 1998 has been his best year yet.

Television and film production has become an option, with Al Anderson of Anderson Communications in Atlanta (No. 12 on the BE ADVERTISING AGENCIES list with $16.3 million in billings) setting his sights on sports programming. UniWorld is delving deeper into entertainment with its recently revamped television news show, America 's Black Forum, and last year's launch of UniWorld Films, headed by Jeff Friday, to specialize in film marketing and related promotional events.

Another option for black agencies is to join forces with each other. "I think there's a lot of territory uncovered," says Coleman. "If a small agency wants to be attractive to a general market agency, they should consider strategic alliances with other small black agencies and build critical mass. It will open the door to greater opportunity and bring about a sense of unity."

1999 TOP 20 ADVERTISING AGENCIES SUMMARY

BLACK-OWNED ADVERTISING AGENCIES      1997      1998   %CHANGE

NUMBER OF EMPLOYEES                    746       779    4.42%

BILLINGS                           795.169   886.514   11.49%

Prepared by B.E. Research. Reviewed by Mitcheell & Titus L.L.P.

RELATED ARTICLE: HOW WE SELECTED THE TOP AGENCIES

We canvassed the Standard Directory of Advertising Agencies, combed industry publications and made inquires in the field to compile a list of full-service advertising agencies in the U.S. that are 51% black owned. Surveys were sent to these agencies, those that responded and met the criteria were placed into our ranking.

To qualify as a full-service advertising agency, the company has to make media placements--that is, purchase time and/of space for its clients' advertising. Companies that only provide consulting services, or only create or produce advertising or only do media placements do not qualify as full-service agencies.

We elected to list only the 20 highest-earning agencies, based on 1998 performance, on the assumption that these firms were most likely to have at least one national account and a minimum of $2 million in billings.

An agency's financial status is measured in terms of billings, monies allocated by an advertiser to its agency to buy time on television and/or radio, or space in publications and other print media. These media outlets then pay a commission back to the agency in the form of a discount in the 15%-22% range, which the agency counts as revenue. Other sources of revenue for an agency include production fees that the agency charges the client to produce the advertising, and fees for adjunct services such as public relations, consulting and promotional work.

Our ranking is based on a combined total of actualized billings plus capitalized billings (where commissions have not yet been paid, but the media buys were completed) and other agency fees reported as revenues, an accepted industry practice for reporting earnings status. In most all cases, this accounts for the differences between Red Book figures and agency-reported figures.3